Only one week left until the election.
As the U.S. presidential election approaches, over 41 million voters have already cast early ballots for the 2024 presidential election as of the afternoon of October 27 local time. This has led to increased volatility in the crypto market, with Bitcoin leading the charge, surging back above the long-awaited $71,000 mark this week, and the crypto sector generally rising, particularly the MEME market, which is reveling in PolitiFi.
Returning to the two candidates, the competition between Harris and Trump is becoming increasingly intense. Due to recent issues such as the mishandling of Hurricane "Milton" and the Israel-Palestine conflict, Harris's approval ratings have plummeted, allowing Trump to successfully overtake her. Not only is he expanding his advantage in betting odds and swing state polls, but he is also closely trailing in traditional polls. Given the current situation, Trump seems more likely to become the next U.S. president, triggering the "Trump trade."
Looking back at their policy strategies, both candidates focus on government subsidies to drive capital back into the economy, though their methods differ slightly. Trump promotes private enterprise development through tax cuts, while Harris prefers direct cash subsidies to residents. The flow of capital also varies; Harris inherits Biden's governance philosophy, focusing on key core industries like chips and new energy, while Trump maintains a stance of aggressive tariffs and "America First."
In the current context, Trump's chances of winning are higher, and the financial market is naturally more focused on his policy proposals. Specifically, citing CICC's views, Trump's main governance directions include domestic tax cuts, increased tariffs on imports, deregulation, expulsion of illegal immigrants, encouragement of fossil energy, emphasis on technology, and diplomatic isolationism. The cumulative impact of these governance directions could lead to upward inflation risks if Trump takes office, which may prompt the Federal Reserve to take measures to slow down interest rate cuts and manage higher terminal rates. From a capital market perspective, if economic resilience is maintained, a soft landing would benefit U.S. stocks, cyclical goods, and Bitcoin, but in extreme cases, inflation could suppress the capital market, benefiting anti-cyclical assets like gold.
Estimates of the impact of Trump's policies on the U.S. economy, source: CICC Research
One can refer to the 2016 U.S. election, when the market also triggered the "Trump trade," especially after his victory in November 2016, leading to a sharp rise in optimistic expectations. U.S. Treasury yields rose from 1.7% to 2.6% within a month, and the dollar index broke through 103 from 97. Looking at U.S. stocks, the three major indices rose by 10% during this period. In terms of commodities, inflation expectations drove copper and oil prices up significantly, while gold reversed, dropping 3% within a month after the election.
Data source: Bloomberg, CICC Research Department
It is evident that Trump's victory in 2016 was a black swan event, but currently, the capital market has already priced in his potential victory. The most prominent asset is undoubtedly cryptocurrency. Trump has previously advocated for crypto in public and recently launched a family crypto project, leading the crypto market to have high hopes for him.
From the crypto prediction market Polymarket, the betting amount has surpassed $2.1 billion, with Trump's winning probability reaching 66.2%, far exceeding Harris by 33 percentage points, and the gap continues to widen. The Bitcoin market has reacted strongly, with Bitcoin continuing to rise as the election approaches, currently above $71,000, and expectations are undoubtedly one of the reasons for this increase.
What will happen to Bitcoin and the crypto market before and after the election? Major institutions and analysts have engaged in intense discussions on this topic.
Traders generally believe that the election presents an important trading opportunity, with many betting on a rebound. According to Matrixport data, the U.S. election is igniting market sentiment, with the funding rate for Ethereum perpetual futures reaching its highest level since May 2024, highlighting a strategy of buying on dips.
Top trader Eugene Ng Ah Sio also spoke on social media, stating that positioning is now clear, and an upward trend will open after the election. He emphasized that speculative long positions in October have largely been wiped out, and most people will avoid risks in the week following the election, with SOL being a clear asset choice.
Derivatives have drawn similar conclusions. Deribit CEO Luuk Strijers stated that derivatives traders are preparing for a bullish trend in Bitcoin in the days following the U.S. election on November 5. For options expiring on November 8, the open interest value exceeds $2 billion, with major strike prices at $70,000, $75,000, and $80,000, and a put/call ratio of 0.55, indicating that the number of open call options is twice that of put options. Compared to Mark IV, Forward IV has shown a significant increase, especially during election week, indicating that traders expect higher volatility. The forward implied volatility is at 72.29%, suggesting that prices may fluctuate by about 3.78% in the days following the presidential election. Demand for call options is strong compared to put options, indicating that investors are less concerned about managing downside risks.
Institutions also maintain a more optimistic attitude. Just half a month ago, Standard Chartered, often labeled as outrageous by the market, stated that Bitcoin is showing strong upward momentum and may approach its historical high of $73,800 on election day. They believe that factors driving Bitcoin's rise include a steepening U.S. Treasury yield curve, inflows into spot Bitcoin ETFs, and an increased probability of Trump's victory. Based on the current Bitcoin price, Standard Chartered may be surprisingly correct this time.
Matthew Sigel, head of digital asset research at VanEck, also predicted in an interview that investors are preparing for the U.S. election, mentioning that this election will follow a similar path to 2020, with Bitcoin starting to rise after a brief period of volatility following the announcement of the winner, and that Trump's chances of winning are higher. Bernstein also reiterated that if Trump wins the U.S. election next month, Bitcoin's price could reach historical highs of $80,000 to $90,000.
In this regard, hedge fund manager Paul Tudor Jones stated that one should not limit themselves to the presidential candidates, as he believes that regardless of who takes the presidency, the policies adopted will all lead to inflation, further driving up BTC and other commodity prices.
Bitfinex has also added quarterly factors based on the election, believing that Bitcoin will experience turbulence in the coming weeks, with the uncertainty of the election, the "Trump trade" narrative, and historically favorable fourth-quarter conditions creating a perfect storm for market trends. A report released by Bitfinex shows that options expiring on key dates before and after the election have higher premiums, with implied volatility expected to peak at 100-day volatility shortly after election day on November 8. Historically, the fourth quarter has ended with gains, with a median quarterly return of 31.34%, potentially pushing Bitcoin to reach or even exceed historical highs after the election.
Of course, despite the optimism expressed by most institutions and traders, some analysts believe that betting on short-term volatility is shortsighted. Jean Boivin of BlackRock Investment Research mentioned that the market is underestimating the risk of a candidate contesting the election results next month, and a controversial election victory typically leads to weeks of legal battles, affecting risk assets.
Copper analysts directly pointed out that the market may be at a temporary top before the U.S. election, as on-chain data shows that 98% of short-term holders' wallet addresses are currently in profit. Historically, when this ratio rises significantly, investors tend to lock in profits, often leading to rapid selling pressure.
Overall, in the crypto market, it is evident that market sentiment remains unchanged, but the macro factors influencing cryptocurrency performance are shifting from monetary policy to the outcome of the U.S. election, with the crypto market favoring a favorable Trump, whose policy proposals may also push up Bitcoin and its strong correlation with U.S. stocks. Therefore, among many analysts' predictions, Bitcoin is expected to break new highs in this trading cycle.
Even excluding the crypto sector, similar signals have emerged in other financial sectors since September, when Trump's probability of winning increased. Given Trump's more aggressive tariff policies, he has claimed that he may impose a blanket 10% baseline tariff on all goods entering the U.S. and impose tariffs of 60% or higher on China, leading to a recent weakening of the renminbi, Mexican, and Vietnamese currencies. In the traditional energy sector supported by Trump, according to CICC Research Department data, as of October 24, oil and gas energy has surged by 5.8% since September 26, while the clean energy index has dropped by 9.4%. On social media, since September 23, the Trump Media Technology Group (DJT) has seen an astonishing increase of 289.79%, clearly indicating a betting trend.
Of course, this currently reflects only the market's pre-election trading, and expectations are an important part of the current situation. However, this means that expectations have also been taken into account, and once they materialize, a short-term pullback is very likely. On the other hand, even if Trump takes office, governance will also need to consider the House of Representatives, which dominates fiscal policy; otherwise, he may face governance constraints like Biden did after taking office. However, according to the latest poll from the seasoned political observation site 538 (fivethirtyeight), Trump's chances of winning this year's presidential election have risen to 53%, with an 87% chance of the Republican Party taking the Senate majority from the Democrats, and a 53% chance of the Republican Party maintaining the House majority, increasing the probability of a complete Republican victory. In this regard, the competitive pressure on the Democratic Party from both the White House and Congress has reached its peak.
Regardless, the intense volatility before and after the U.S. election has become inevitable, and any group betting on trading opportunities should remain vigilant. For the election, until the end, the outcome is never determined; even after the voting is completed, discussions about the validity of the results will not cease.
During this period, the most active in the crypto market may only be Bitcoin and MEME.
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